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China Watch: Not a Merry Time for Maritime

Written by: Ralph Jennings08/03/12 - 8:28 AM EDT

TAIPEI, Taiwan ( TheStreet) -- The South China Sea spans 3.5 million square kilometers from Singapore to Taiwan, rimmed by many of the core countries on the world's most populous continent. No surprise that half the world's marine shipping traffic passes through it.

A 40-year-old sovereignty dispute over the sea has kicked up such a storm this year that just two weeks ago this column highlighted the dangers to offshore oil drillers .

The six claimants failed to reach a deal on how to avoid naval clashes. China founded a city on the Paracel Islands, south of its mainland and east of Vietnam, which claims the same archipelago and has gone head to head over sea sovereignty twice since the 1980s with its mighty neighbor to the north. In April, a standoff between China and the Philippines grew extra tense as the United States backed old friend Manila over fellow superpower Beijing.

Stuck in the middle: Tankers and container ships that do business estimated at $5 trillion a year. They move goods between the Pacific Ocean on the east side of the Sea to ports on the other side along the Persian Gulf or the Indian Ocean.

Those shippers, it turns out, are in trouble -- but not from the South China Sea dispute.

According to the U.S.-based public policy organization, GlobalSecurity.org, five times more tanker traffic goes from the Strait of Malacca into the South China Sea than through the Panama Canal. Malacca is already infamous for pirate attacks against passing ships. Almost all of that traffic must pass near the Spratly Islands, one of the most hotly contested regions ocean area.

But shippers need not stop or reroute cargoes, say those close to the industry. Fight as they may, countries that claim all or part of that ocean depend on those shipments, which are mainly raw materials. China, the most aggressive claimant lately, is particularly hungry for those resources as its economy grows despite talk of a slowdown .

"Although there is a lot of back and forth on this territorial dispute between China and the Southeast Asian countries, particularly Vietnam and Philippines, there has been no disruption to the trade lanes through this area, mainly because it will affect China directly, as most of its trade happens through these trade lanes," explains Capt. Rohit Bhatia, managing director of Wade Maritime Consultants in India.

"It is not in China's interest to disrupt traffic and cause diversions," he says.

Brunei, Malaysia and Taiwan also claim all or part of the sea.

China is hardly the only party with something to lose from a threat to shipping. Most commercial vessels in the South China Sea take raw materials to East Asia, with Malacca-Spratly traffic carrying largely crude oil, liquefied natural gas and iron ore, GlobalSecurity.org says. Japan, South Korea and Taiwan are the major takers of liquefied natural gas transported through the South China Sea.